Although the likelihood that, for example, either Beverly Hills (rated AAA) or Stockton (A+) will default may be low, that does not mean that both municipalities deserve the same rating, nor that neither would ever default. Their credit profiles and economic fundamentals differ.

A rating system should reflect these differences to help investors make decisions. Even though the ultimate risk may be small, in our opinion, California is more at risk of default than higher-rated states.

Second, while it is true that historically California investors have purchased a high proportion of California debt, that is primarily because of the tax benefits.